Selling short in an exchange...the biggest scam of all

[adhitthana]

Excuse me, I've short sold many times.   I think I understand it very well.   Have you actually ever short sold anything?   Short selling requires borrowing the asset and selling that, then you pay interest on that borrowing and pay back with the asset.   It is pretty simple.   There isn't any gaining title to the asset you sell, at least not with stocks or contracts so I don't see how it is any different with a crypto currency.  

No you are wrong. When you borrow a stock to sell it short you have title to the stock. You may not know this as all you have been doing is executing the sale. A whole lot more is happening in the back office of the organization you are dealing with.
You may think you "know it well', but you're only familiar with what is happening on the surface, not in the back office, where things are reconciled.

Now, large firms may not follow this procedure as, for them, but not for you, it has been a grey area legally. And depending which country you are in the regulators may not have caught up fully yet. though it's been a big area of focus the last few years.

But..without digressing too much, this is different to crypto currencies because of the nature of them. By the nature of the blockchain itself.
But in short, when you deposit your coins with an exchange (or most anyway), they can pretty much do what they like with them. Some go into eh hot wallet. They are no longer yours. this is why "hackers" (not really hackers) were able to to steal coins from several exchanges, out of the "hot wallets".

As the coins are entirely fungible, you just get an equal amount of coins back if you withdraw.

Now because, you as the "owner" of the coins have never entered into a loan agreement, you imagine you still own your coins and can sell them at will. But you can't necessarily. You are relying on a "trusted third party" to not stuff things up.
If the exchange loaned out coins, which were then shortsold then obviously everyone cant sell or withdraw their coins.
But that, my friend, is just one of the problems.
This is a market manipulators dream  
Imagine being the only person or organisation who was able to short sell a particular crypto currency. Bad news comes out and you have no competition. Everyone one else is either long or square.

And yes, I have probably done hundreds of thousands of short sales, as I have worked professionally in that business for many years. I'm very familiar with market making, short selling etc...

What I'm concerned about is exchanges and trading firms destroying and profiting from what I think is a tremendous community based project. I don't think they really have the crypto community at heart most of the time

Added in edit: I should have added that the gold market in the west is a notable exception where shorting is concerned, but that is hardly a model that should be emulated.

[dyask]

No you are wrong. When you borrow a stock to sell it short you have title to the stock.

You clearly have no experience and no idea what you are talking about.  

As the coins are entirely fungible, you just get an equal amount of coins back if you withdraw.

Bitcoin lacks fungibility, that is a major issue with it as a currency.   Why do you think that things like colored coins can exist?   The blockchain is public and all transactions are public.   Inside an exchange many off the block transactions are done for speed and other reasons but that isn't the same as being "entirely fungible".   Besides fungibiltiy doesn't have anything to do with short selling.

You are just throwing around terms and nonsense.   At this point I don't think you have a point or even a basic understanding of what you are trying to talk about.  

[adhitthana]

Bitcoin lacks fungibility, that is a major issue with it as a currency.   Why do you think that things like colored coins can exist?   The blockchain is public and all transactions are public.   Inside an exchange many off the block transactions are done for speed and other reasons but that isn't the same as being "entirely fungible".   Besides fungibiltiy doesn't have anything to do with short selling.

Your coins inside an exchange are entirely fungible. If you withdraw coins do you really think you get the same coins back.   Bitcoins as a currency are fungible.
Why do you think there was such a big issue with the recent USA tax interpretation, that indicated Bitcoins were to be treated as property?
Because this made them non-fungible for tax purposes.
Fungibility has everything to do with short selling, because you don't buy back the exact same coins or stocks or metal that you sell. You don't get the same dollar out of the bank that you deposit.

I'm going to put you on ignore friend, as this is becoming a waste of time.

[sonysasankan]

Short selling is fine as far as backed with real coins.

It's fine if there is a level playing field. What I'm suggesting is there is not one.
Secondly I'm sure you can imagine the potential problems if title is not granted when coins are short sold..
 

Btw apart BTCe which exchanges openly allow short selling?

I don't know. Do you think they will tell you if they are letting people sell your coins?
I'm suggesting it is happening because there is no rational for bots to keep pressuring prices down unless they are short. The way these bots are operating (at times) is the same MO as bots that are designed to see how low they can get the price of this or that financial instrument.
You just have watch the price action.
If you offer to sell they immediately jump in front. I you buy the price up a little, they immediately (and I mean immediately) tick the price down lower. They fill the screen with tiny sell orders. They continually sell small amounts as low as they can.

There is only one strategy this type of algorithm fits. Its the way computer trading systems are programmed to act when they are short. Not at any other time.

Ok.... lets break this down to simple practicality. If you are putting up your BTC for sale for USD 500. Then immediately a "bot" comes in and places a BTC for 499. . You then willingly place your next BTC for 498 and so on till its like 496 or something, am I right? So this is when I come in and go "hey look... cheap BTC... let me buy some" and purchase all the 5 or 6 BTC I see selling for less than 500. I don't see where your conspiracy theory of "short selling" and the "invisible hands of deep pockets" driving prices down happening. The market exists because a majority can buy at the prices they see and sell at will for the prices they want. A trade gets executed when two of them makes eye contact and shakes hands. It does not matter if one of them is a bot as long as the other get at the price indicated on screen.

And just so you know, I one up a seller by selling for a few satoshis all the time... hell, I must be imitating a bot then!! You think there is some unseen nod between traders that they won't sell above / below a certain price or something?

[dyask]

Bitcoin lacks fungibility, that is a major issue with it as a currency.   Why do you think that things like colored coins can exist?   The blockchain is public and all transactions are public.   Inside an exchange many off the block transactions are done for speed and other reasons but that isn't the same as being "entirely fungible".   Besides fungibiltiy doesn't have anything to do with short selling.

Your coins inside an exchange are entirely fungible. If you withdraw coins do you really think you get the same coins back.   Bitcoins as a currency are fungible.
Why do you think there was such a big issue with the recent USA tax interpretation, that indicated Bitcoins were to be treated as property?
Because this made them non-fungible for tax purposes.
Fungibility has everything to do with short selling, because you don't buy back the exact same coins or stocks or metal that you sell. You don't get the same dollar out of the bank that you deposit.

Yes inside of an exchange it is possible for bitcoin to appear fungible.   This is the same with any other asset being held by a broker.   However you have totally twisted the concept into something else.   If someone shorts bitcoins, it doesn't mean it is any particular person's coins and the net effect of shorting is zero.   There isn't anything special here.   It also doesn't mean that bitcoin is fungible.

If you want free markets you have to accept short selling as well as options, futures and any other concept can be come up with.  That is part of freedom.   Exchanges can still verify they hold enough coins to cover everyone's accounts.   These trading vehicles are available to everyone.  It isn't a scam.  That is true at least as long a naked positions are not allowed.  

We are moving towards p2p exchanges and there will short selling, options and who all knows what.   That is all apart of a free market place.   Short selling itself is simply a tool.

If you are upset about the use of software, tough.  Bitcoin is only software.  Better get used to it. 
 
If there is any scam here it is in spreading alarmist FUD.   The only thing you have shown so far is that you are against free markets.  

[adhitthana]

Ok.... lets break this down to simple practicality. If you are putting up your BTC for sale for USD 500. Then immediately a "bot" comes in and places a BTC for 499. . You then willingly place your next BTC for 498 and so on till its like 496 or something, am I right? So this is when I come in and go "hey look... cheap BTC... let me buy some" and purchase all the 5 or 6 BTC I see selling for less than 500. I don't see where your conspiracy theory of "short selling" and the "invisible hands of deep pockets" driving prices down happening.

It's happening in smaller crypto's more. In the BTC/USD market they don't have that much advantage (if any). That market is too active and more difficult for a bot.
But as mentioned, algorithmic trading has come a long way over the last 20 years. They know where the opportunities are, and trading BTC against the USD is unlikely to be one.
This strategy has been observed and written about. HFT firms in the stock market make the pretense they are adding liquidity, and most of the time their trading in larger stocks is marginal, but in less liquid stocks their tactics are more predatory

However as mentioned above also the time is probably happens with BTC is when some major negative news comes out. And that would mean it is not a level playing field..

One of the other problems is that if someone is short selling coins out of a hot wallet. then it means that potentially people will not be able to withdraw or sell their coins. Of course an exchange is unlikely to admit what has happened and will more than likely say they are doing an audit, or they are having technical problems and not to worry.

[sonysasankan]

Ok.... lets break this down to simple practicality. If you are putting up your BTC for sale for USD 500. Then immediately a "bot" comes in and places a BTC for 499. . You then willingly place your next BTC for 498 and so on till its like 496 or something, am I right? So this is when I come in and go "hey look... cheap BTC... let me buy some" and purchase all the 5 or 6 BTC I see selling for less than 500. I don't see where your conspiracy theory of "short selling" and the "invisible hands of deep pockets" driving prices down happening.

It's happening in smaller crypto's more. In the BTC/USD market they don't have that much advantage (if any). That market is too active and more difficult for a bot.
But as mentioned, algorithmic trading has come a long way over the last 20 years. They know where the opportunities are, and trading BTC against the USD is unlikely to be one.
This strategy has been observed and written about. HFT firms in the stock market make the pretense they are adding liquidity, and most of the time their trading in larger stocks is marginal, but in less liquid stocks their tactics are more predatory

However as mentioned above also the time is probably happens with BTC is when some major negative news comes out. And that would mean it is not a level playing field

Why is it not a level playing field? That's what I don't understand. You are not really explaining yourself and simply throwing allegations and conspiracy theories around. Can you explain it without Jargons and constantly referring to "algorithmic trading". If possible can you explain without using the word "short" or atleast explain what the process is for "shorting"... like what excatly happens. Can you explain using apples and oranges? Can you explain if to make a 7 yr old understand? There's just too much of dick measuring going on here without any learning experience happening IMO.

[adhitthana]

Why is it not a level playing field? That's what I don't understand. You are not really explaining yourself and simply throwing allegations and conspiracy

Because one group, has the special privilege of being able to short sell from the hot wallet and all the rest don't have that privilege.

Isn't that an unlevel playing field?

[adhitthana]

Another problem is that if people are short selling from the hot wallet, then eventually a circumstance will arise where not everybody will be able to withdraw their coins, because someone has short sold some coins 

[dyask]

Ok.... lets break this down to simple practicality. If you are putting up your BTC for sale for USD 500. Then immediately a "bot" comes in and places a BTC for 499. . You then willingly place your next BTC for 498 and so on till its like 496 or something, am I right? So this is when I come in and go "hey look... cheap BTC... let me buy some" and purchase all the 5 or 6 BTC I see selling for less than 500. I don't see where your conspiracy theory of "short selling" and the "invisible hands of deep pockets" driving prices down happening.

It's happening in smaller crypto's more. In the BTC/USD market they don't have that much advantage (if any). That market is too active and more difficult for a bot.
But as mentioned, algorithmic trading has come a long way over the last 20 years. They know where the opportunities are, and trading BTC against the USD is unlikely to be one.
This strategy has been observed and written about. HFT firms in the stock market make the pretense they are adding liquidity, and most of the time their trading in larger stocks is marginal, but in less liquid stocks their tactics are more predatory

However as mentioned above also the time is probably happens with BTC is when some major negative news comes out. And that would mean it is not a level playing field

All trading is predatory and there are only level playing fields are in sports.  

[dyask]

Another problem is that if people are short selling from the hot wallet, then eventually a circumstance will arise where not everybody will be able to withdraw their coins, because someone has short sold some coins 

You are just throwing random things against short-selling.   It doesn't add any value to your point. 

[sonysasankan]

Another problem is that if people are short selling from the hot wallet, then eventually a circumstance will arise where not everybody will be able to withdraw their coins, because someone has short sold some coins

You are just throwing random things against short-selling.   It doesn't add any value to your point.  

Exactly... please explain what a short sell and what a hot wallet is? Preferably without using these terms? Please... I am a noob  

EDIT: A good way to know if you understand a concept or an idea fully is to see if you can make someone else understand it.

[dyask]

Another problem is that if people are short selling from the hot wallet, then eventually a circumstance will arise where not everybody will be able to withdraw their coins, because someone has short sold some coins

You are just throwing random things against short-selling.   It doesn't add any value to your point.  

Exactly... please explain what a short sell and what a hot wallet is? Preferably without using these terms? Please... I am a noob  

EDIT: A good way to know if you understand a concept or an idea fully is to see if you can make someone else understand it.

Short selling is simply borrowing an asset and then selling it.  You pay it back by buying the asset back.   You are hoping the asset goes down in value more than your cost of borrowing it.

Hot Wallet is a wallet that coins can be quickly withdrawn from and deposited too.   Cold storage is typically offline and may take more than an hour to access, but it is safer.   A hot wallet is online and ready for use at any time.   When a hot wallet is empty it is typically refilled from a cold storage wallet.   

Cold storage just means it has never been online.   

Note you don't actually have to move an asset to short sell it, it can all be done by accounting.   Since short sold assets have to be bought back at some point, it is a zero sum game to the market in the long term.

[adhitthana]

Exactly... please explain what a short sell and what a hot wallet is? Preferably without using these terms? Please... I am a noob  

EDIT: A good way to know if you understand a concept or an idea fully is to see if you can make someone else understand it.

When we put our coins into an exchange, most of them should be stored offline in a "cold wallet", As they are offline they can't be stolen.
Some coins however are stored in a "hot" wallet, or an online wallet, where they can be quickly accessed for trading.

But in a hot wallet they are vulnerable to being stolen. Several exchanges have recently had coins stolen. These coins were stolen from the hot wallet, or online wallet. The ones in the cold wallet were safe.

Short selling is selling something you don't own (probably in the hope of buying it back cheaper). It is common in share markets. But selling from a hot wallet is very different. In a share market you arrange to borrow the shares, which means you enter into a contract with the custodian or owner of the shares. So if you have loaned the shares you cant sell them. But the owner or custodian knows this.

If an exchange is allowing one player to sell other peoples shares from the hot wallet, then there is no arrangement involving the actual owner. The "owner" doesn't even know the exchange is doing this.
So if the excahnge allowed someone to short sell from the hot wallet then, if enough people try to withdraw their shares the pool will run dry.
 

[sonysasankan]

Another problem is that if people are short selling from the hot wallet, then eventually a circumstance will arise where not everybody will be able to withdraw their coins, because someone has short sold some coins

You are just throwing random things against short-selling.   It doesn't add any value to your point.  

Exactly... please explain what a short sell and what a hot wallet is? Preferably without using these terms? Please... I am a noob  

EDIT: A good way to know if you understand a concept or an idea fully is to see if you can make someone else understand it.

Short selling is simply borrowing an asset and then selling it.  You pay it back by buying the asset back.   You are hoping the asset goes down in value more than your cost of borrowing it.

Hot Wallet is a wallet that coins can be quickly withdrawn from and deposited too.   Cold storage is typically offline and may take more than an hour to access, but it is safer.   A hot wallet is online and ready for use at any time.   When a hot wallet is empty it is typically refilled from a cold storage wallet.   

Cold storage just means it has never been online.   

Note you don't actually have to move an asset to short sell it, it can all be done by accounting.   Since short sold assets have to be bought back at some point, it is a zero sum game to the market in the long term.

So basically every trader's wallet in an exchange is a hot wallet. Its not something exclusive to "deep pockets". Ok.

As for shorting, then basically its like a bet you are doing with the guy who runs the exchange owner. Or am I understand this wrong? Or is it like a loan you are taking out from the exchange owner and putting it for sale for a higher price, then buy it back when its lower and return teh BTC to the owner? So what this fellow's talking about is like a "previlaged" access to the owner's stash of gold coins to play with?

[sonysasankan]

Exactly... please explain what a short sell and what a hot wallet is? Preferably without using these terms? Please... I am a noob  

EDIT: A good way to know if you understand a concept or an idea fully is to see if you can make someone else understand it.

When we put our coins into an exchange, most of them should be stored offline in a "cold wallet", As they are offline they can't be stolen.
Some coins however are stored in a "hot" wallet, or an online wallet, where they can be quickly accessed for trading.

But in a hot wallet they are vulnerable to being stolen. Several exchanges have recently had coins stolen. These coins were stolen from the hot wallet, or online wallet. The ones in the cold wallet were safe.

Short selling is selling something you don't own (probably in the hope of buying it back cheaper). It is common in share markets. But selling from a hot wallet is very different. In a share market you arrange to borrow the shares, which means you enter into a contract with the custodian or owner of the shares. So if you have loaned the shares you cant sell them. But the owner or custodian knows this.

If an exchange is allowing one player to sell other peoples shares from the hot wallet, then there is no arrangement involving the actual owner. The "owner" doesn't even know the exchange is doing this.
So if the excahnge allowed someone to short sell from the hot wallet then, if enough people try to withdraw their shares the pool will run dry.
 

Ok so that basically is how a bank works right?

[sonysasankan]

I mean Im failing to see how the "conspiracy" works... how is someone able to say fix the price of Asia Coin to 1500? How are they able to stop buyers from posting a sell of 1600? How are they stopping a buy of 1600?

[adhitthana]

So what this fellow's talking about is like a "previlaged" access to the owner's stash of gold coins to play with?

Yes. Except we put the coins in. They aren't the "owners coins". Though perhaps in the fine print the owner might have said "if you transfer coins to my site then I own them......suckers"  

[adhitthana]

I mean Im failing to see how the "conspiracy" works... how is someone able to say fix the price of Asia Coin to 1500? How are they able to stop buyers from posting a sell of 1600? How are they stopping a buy of 1600?

They can't.

Imagine though, if you were able to short sell any crypto coin. Do you think there would be times when the odds were so much in your favour that you make a profit by doing so?

Imagine say, as an obvious example, that the US government came out and said they were going to prosecute any person who used Bitcoin. You would probably make money if you short sold Bitcoin at that time.

[sonysasankan]

So what this fellow's talking about is like a "previlaged" access to the owner's stash of gold coins to play with?

Yes. Except we put the coins in. They aren't the "owners coins". Though perhaps in the fine print the owner might have said "if you transfer coins to my site then I own them......suckers"  

Ya, but what's in it for the exchange owner if he allows someone to do that? Not to mention they need to have access to all the exchanges that particular coin is trading at right? And not just that, how is the "deep pockets" going to make money from this whole thing? If he using other people's BTC to buy Asia coins, its basically visible to others and they too will buy those Asia coins. Eventually, its gotta run out, and there will be others who will start to sell it for higher, but technically it should just disappear from his hot wallet because the deep pockets sold everything right? I mean how does that work? The market price corrects itself because of the other people keeping a watch on the prices.